Technical Assistance to the People's Republic of China for Preparing The

Technical Assistance

TAR: PRC 38174

Technical Assistance to the People’s Republic of China for Preparing the Western Roads Development Project

August 2005

CURRENCY EQUIVALENTS (as of 14 August 2005)

Currency Unit – yuan (CNY) CNY1.00 = $0.1233 $1.00 = CNY8.108

ABBREVIATIONS

ADB – Asian Development Bank EA – executing agency EIA – environmental impact assessment EIRR – economic internal rate of return FIRR – financial internal rate of return FYP – five-year plan GDP – gross domestic product GPCD – Gansu Provincial Communications Department IPSA – initial poverty and social assessment O&M – operation and maintenance PRC – People’s Republic of China REA – rapid environmental assessment RP – resettlement plan SPCD – Sichuan Provincial Communications Department TA – technical assistance VOC – vehicle operating cost

TECHNICAL ASSISTANCE CLASSIFICATION

Targeting Classification – General intervention Sector – Transport and communications Subsector – Roads and highways Theme – Sustainable economic growth Subthemes – Promoting economic efficiency and enabling markets, and Fostering physical infrastructure development

NOTE

In this report, “$” refers to US dollars.

This report was prepared by the project team comprising M. Ojiro (team leader), S. Ferguson, S. Noda, and X. Yang.

I. INTRODUCTION

1. During the 2005 Country Programming Mission for the People's Republic of China (PRC), the Government confirmed its request for technical assistance (TA) to prepare integrated roads development projects in Gansu Province and Sichuan Province.1 The Asian Development Bank (ADB) Fact-Finding Mission visited the PRC in June 2005; traveled to the project areas; carried out an initial poverty and social assessment (IPSA) and rapid environmental assessment (REA); and discussed economic, social development, and project-specific issues with officials of the central and local governments. This report is based on the understanding reached with the Government on the objectives, scope, costs, terms of reference, and implementation arrangements for the TA, and the Mission's observations in the field. A design and monitoring framework, outlining the impact, outcome, outputs, and activities, is in Appendix 1.

II. ISSUES

2. PRC’s economic growth over the last decade has substantially increased the demand for transport services. The economy’s changing structure and increasing diversification have altered the pattern of transport demand. The demand for road transport has outpaced that of other transport modes. There is a need to rapidly move goods and passengers by roads, which are more flexible and responsive than other modes to the needs of a market economy. The shift in transport demand also reflects the loosening of anticompetitive restrictions in the road transport industry itself. Between 1990 and 2004, road traffic grew by 9.0% yearly for passenger traffic, reaching 876.5 billion passenger─kilometers (km); and by 6.0% yearly for freight, reaching 759.7 billion ton─km. In 2004, roads accounted for 53.7% of the country’s total passenger traffic and 11.4% of the total freight traffic. With the country’s rapid economic growth, low vehicle ownership rates, and large investment in automotive manufacturing, rapid expansion in the vehicle fleet will continue in the coming years. PRC’s road network was 1.86 million km in 2004, an increase of 46,000 km from 2003. Of this, the expressway length increased from 29,745 km to 34,200 km during the same period.2 However, the road network is still underdeveloped in quality and extent. High-standard roads3 account for only about 14% of the total road network; the remaining 86% (class III road and below) are medium- to low-grade paved and gravel roads. With only 1,431 km of roads per million inhabitants and 19.4 km per 100 km2 in 2004, the density of PRC's road network is low, resulting in serious transport capacity constraints and bottlenecks.

3. The road network in Gansu Province is underdeveloped in both quality and extent. In 2004, Gansu’s road network accounted for 2.2% of the country’s total, with 40,751 km. Of this total, 31,614 km comprised: 686 km of expressways, 143 km of class I roads, 4,826 km of class II roads, and 25,961 km of class III–IV roads. Unclassified roads covered 9,137 km. The road density in Gansu was 9.0 km per 100 km2, lower than the national average; and the proportion of road class II and above is significantly lower than the national average. In Sichuan Province, the road network also remains underdeveloped. Sichuan’s road network accounted for 6.1% of the country’s total, with 113,043 km. Of this, 76,401 km comprised: 1,758 km of expressways, 1,496 km of class I roads, 9,633 km of class II roads, and 63,514 km of class III–IV roads. Unclassified roads covered 36,642 km. The road density in Sichuan was 23.3 km per 100 km2, slightly higher than the national average, but the proportion of road class II and above is significantly lower than the national average.

1 The TA first appeared in ADB Business Opportunities (internet edition) on 5 April 2005. 2 The PRC has the world’s second longest expressway system after the United States. 3 This is defined as roads above class II that are generally capable of accommodating 3,000–7,500 vehicles per day in medium-sized truck equivalent within the expected design life. 2

4. The impact of road investments on poverty reduction is supported by the results of studies and evaluations of several completed road projects financed by ADB4 and the World Bank. 5 Well-integrated road development helps ensure that the benefits derived from the expressway filter down to the poor. Benefits from transport cost savings and time savings, along with an increase in incomes, will be passed on through the transport chain to townships and villages. The results affirm the relevance of ADB’s strategy in the PRC road sector. A case study in Shaanxi Province found that improved roads correlated with poverty reduction, and that (i) 3.2 poor people are lifted out of poverty for every CNY10,000 invested in roads; and (ii) for every 1% increase in kilometer of road per capita, household consumption increases by 0.08%.6

5. While the national trunk highway system is being developed, accessibility in most of PRC’s rural area is still low. Currently, 145 townships and 50,124 villages, most of which are in the western region, have no access to all-weather roads. Many townships and villages still depend on earth tracks that are not suitable for motorized traffic and become impassable during rainy season. Even where all-weather roads have been built in the past, the standard of rural roads is low, maintenance is poor, and many roads are in need of rehabilitation. In view of the need to improve rural accessibility, the central Government completed 71,000 km of rural roads at the cost of CNY60.9 billion, supported by the local governments that constructed 68,000 km, costing CNY57.6 billion in 2004. The Government plans to invest CNY100 billion in developing rural roads during the 11th Five-Year Plan (2006–2010). By 2010, all villages in the eastern region will be linked with paved roads. The same targets will be applied to 80% of villages in the central region and 90% of towns in the western region. The Government’s commitment to reducing poverty through transport infrastructure investment is reflected in the poverty partnership agreement between the Government and ADB.7

6. Gansu Province is one of PRC’s five northwestern provinces. Remote and isolated, with harsh natural conditions, it is one of the least developed provinces. Its key problem is poverty: the per capita gross domestic product (GDP) in 2004 was CNY5,898, only 57% of the national average of CNY10,502. Per capita rural income was CNY1,852, or 63% of the national average of CNY2,963. Despite considerable investments, the road network is still inadequate and does not provide efficient transport access to markets and social services, such as education and health. The number of poor rural people below the provincial poverty line of CNY882 is 261,500 (33.6%) in the project area. One of the reasons for the high poverty incidence is slow economic growth, due partly to inadequate infrastructure, particularly poor local road conditions. Despite considerable investments, the road network is still inadequate, and does not provide efficient transport access to many parts of the province.

7. Sichuan Province is situated in southwestern PRC, with mountains on all sides. Its isolation has been reduced by improved navigation on the Yangtze River, by railway construction, and by the construction of several major highways. The majority of its population are concentrated on the flat, fertile plain in the east and central part, but it has several poverty- stricken areas on its mountainous periphery. Despite rapid development in recent years,

4 In Liaoning and Yunnan provinces, construction of expressways, complemented by upgrading local roads, was associated with a significant increase in rural incomes in the project area. This is reported in ADB. 2000. Project Completion Report on the Liaoning Expressway Project in the People’s Republic of China. Manila; and ADB. 2001. Project Completion Report on the Yunnan Expressway Project in the People’s Republic of China. Manila. 5 Hajj, Hatim, and V. Setty Pendakure. 2000. Roads Improvement for Poverty Alleviation in China. Working Paper No. 1. Washington, DC: World Bank, Transport Sector Unit. East Asia and Pacific Region. 6 ADB. 2000. Technical Assistance for Assessing the Impact of Transport and Energy Infrastructure on Poverty Reduction. Manila. 7 Available: http://www.adb.org/Documents/Poverty/pa_prc.pdf. 3

Sichuan ranks seventh lowest of all provinces in per capita GDP: CNY7,514 in 2004, or 72% of the national average. The per capita rural income was CNY2,580, or 88% of the national average. Of the 2.12 million people in the project area, 216,700 poor people, or 10%, live below the provincial poverty line of CNY1,000. One of the reasons for the high incidence of poverty is slow economic growth due partly to inadequate infrastructure. As in Gansu, the road network is still inadequate, particularly the local roads, and does not provide efficient transport access.

8. The proposed project in Gansu will be the second in that province to be funded by ADB. The first project 8 is being implemented satisfactorily. The Gansu Provincial Communications Department (GPCD) has experience in implementing three internationally financed road projects.9 Lessons learned from these projects will be incorporated in the project design. The proposed project expressway, planned for completion in 2013, forms a southern section of the Lanzhou-Sichuan corridor and constitutes a 132-km access-controlled 4-lane expressway (Map). It will connect with Chengdu and Chongqing, two major growth centers in the southwestern region. The expressway is located in high mountainous terrain, and involves extensive construction of tunnels and bridges that will account for 56% of the expressway’s total length. It presents a technical challenge, and therefore, a careful review of the design and construction methods will be an important feature of the TA. The existing road in this area is 269 km long, with steep gradients and many sharp turns, so the average vehicle speed on this road is low. The expressway will shorten the distance by more than 50%. Recent traffic counts indicate that the current traffic on the existing road is 2,776 vehicles per day, and has been growing at about 5% per annum in the last decade. The existing road conditions are deteriorating in some sections due to poor maintenance and are affecting road safety.

9. The proposed project in Sichuan will be the fourth project under ADB financing that will be undertaken by the Sichuan Provincial Communications Department (SPCD). The first project10 was completed successfully and opened to traffic in December 2003, while the second project 11 is progressing well. The third project12 is being processed for consideration in 2005. Lessons learned from these ADB-financed projects will be incorporated in the project design. The proposed project expressway, connecting Dazhou and Wanyuan in eastern Sichuan, constitutes a 138-km access-controlled 4-lane expressway (Map). It forms part of the eight western development corridors between Arongqi and Beihai that will provide an important link, connecting the northwestern and southwestern regions by 2015. The expressway is located in hilly to mountainous terrain, and involves extensive construction of tunnels and bridges that will account for 38% of the expressway’s total length. The proposed project presents a technical challenge; therefore, a careful review of design and construction methods will be an important feature of the TA. The existing road in this area is 142 km long, with steep gradients and many sharp turns, so the average vehicle speed on this road is low. Recent traffic counts indicate that the current traffic on the existing road is about 2,580 vehicles per day, and has been growing at about 4% to 9% per annum in the last decade. The technical standard is class Il to class IV, but its physical

8 ADB. 2004. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Gansu Roads Development Project. Manila. 9 These are the Liugouhe-Zhonghe expressway (completed in 2002) and Xujiamo-Jiepaicun highway (completed in 2001) financed by the World Bank. The Liuzhaike-Baiyin expressway (ongoing) is financed by the Japan Bank for International Cooperation and will open to traffic by October 2005. 10 ADB. 1998. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Chengdu-Nanchong Expressway Project. Manila; and ADB. 2004. Project Completion Report on the Chengdu-Nanchong Expressway Project in the People’s Republic of China. Manila. 11 ADB. 2002. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Southern Sichuan Roads Development Project. Manila. 12 ADB. 2005. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Central Sichuan Roads Development Project. Manila (draft). 4 conditions are deteriorating in some sections due to poor maintenance and are affecting road safety.

10. ADB's operational strategy13 in PRC’s road sector is designed to remove infrastructure constraints and support policy and institutional reforms. Since 1991, ADB has provided 30 loans, totaling nearly $5.6 billion, to finance about 4,100 km of expressways, together with 7,600 km of associated local road networks. Since 1995, local roads have been included in the scope of road projects to make ADB’s interventions in the road sector more pro-poor. All the ADB loans are generally being implemented satisfactorily.14 The strategy supports (i) constructing roads that connect major growth centers and improve access in the western and central regions; (ii) integrating the national trunk highway system with local road networks; (iii) promoting road safety and vehicle emission reductions; (iv) strengthening the corporatization and commercialization of expressway organizations; (v) adopting appropriate pricing policies to ensure optimum use of road transport capacity; and (vi) using alternative methods of investment financing, including private sector participation.

III. THE TECHNICAL ASSISTANCE

A. Impact and Outcome

11. The TA will help create an integrated road transport system supporting sustainable economic growth in Gansu and Sichuan provinces. The TA will (i) assist GPCD and SPCD in upgrading the feasibility studies, including environmental impact assessments (EIAs) and resettlement plans for the ensuing projects in conformity with ADB’s requirements; and (ii) review road sector issues and provide the basis for strengthening the ongoing policy dialogue with the Government in the key areas, focusing on the poverty impact of road projects, road safety, vehicle emissions, commercialization and corporatization, private sector development, pricing policies for road users, and public transport services. The output will be projects suitable for ADB financing.

B. Methodology and Key Activities

12. The IPSA and REA carried out during fact-finding for the Gansu and Sichuan portions (Appendix 2) helped identify the social and environmental issues that need to be addressed during project preparation. The fact-finding also reviewed the need for assessing the social and environmental aspects for which ADB has established policies and norms of good practice. The IPSA examined poverty conditions, minority issues, resettlement effects, gender issues, and vulnerable groups, and concluded that the key social issues to be assessed during project preparation are poverty impact and resettlement effects. The IPSA concluded that both projects should be in involuntary resettlement category A,15 requiring a full resettlement plan. The REA concluded that both projects should be in environmental category A, requiring a full EIA. The TA will examine the available project documents, and prepare projects that are feasible from the technical, economic, and financial points of view and are in compliance with ADB’s safeguard policies on the environment, resettlement, and indigenous people. The TA will help develop a results-based monitoring system with adequate baseline data. The key activities will include

13 ADB. 2005. Country Strategy and Program Update (2006–2008): People’s Republic of China. Manila (draft). 14 The project completion reports of road projects concluded that 14 projects were generally successful and one was partly successful. The project performance audit reports for four road projects concluded that the projects were either highly successful or successful. 15 The proposed projects are likely to require about 1,240 ha of land, affecting about 2,700 people in Gansu Province; and about 765 ha of land, affecting 4,500 people in Sichuan Province. 5 field surveys, document review, data analysis, and discussion with stakeholders, including government officials, project beneficiaries, and affected people.

C. Cost and Financing

13. The total cost of the TA is estimated at $1,000,000 equivalent comprising $490,000 in foreign exchange and $510,000 equivalent in local currency. The Government has requested ADB to finance $800,000 equivalent, covering the entire foreign exchange cost and $310,000 equivalent of the local currency cost. The TA will be financed on a grant basis by ADB’s TA funding program. The Government will finance the balance of the local currency cost, equivalent to $200,000, through the provision of counterpart staff, office facilities, and other support services. Detailed cost estimates are in Appendix 3. The Government has been advised that approval of the TA does not commit ADB to financing any ensuing project.

D. Implementation Arrangements

14. Two teams of consultants from an international consulting firm in association with domestic consultants will be engaged by ADB using the simplified technical proposal procedures in accordance with ADB's Guidelines on the Use of Consultants and other arrangements satisfactory to ADB for engaging domestic consultants. The TA will require about 17 person-months of international consulting services and 32 person-months of domestic consulting services to carry out the study as defined in the terms of reference (Appendix 4). The international consultants will have expertise in the following fields: (i) highway engineering, (ii) transport economics, and (iii) financial analysis/expressway operation. The international consultants will utilize domestic consultants with expertise in (i) highway engineering, (ii) transport economics, (iii) financial analysis/expressway operation, (iv) environmental analysis, (v) poverty and social analysis, (vi) resettlement, and (vii) road transport services.

15. GPCD and SPCD will be the Executing Agencies (EAs) for the respective parts of the TA. They will appoint suitable counterpart staff who will be responsible for supervising and coordinating TA activities, including monitoring of progress, resolving any issues that may arise during implementation, assisting in arranging meetings, and liaising with various Government agencies and organizations. The Ministry of Finance will ensure coordination among the National Development and Reform Commission, Ministry of Communications, State Environmental Protection Administration, GPCD, SPCD, and other government offices relevant to the TA. The consultants are expected to be fielded by November 2005, and their work will be carried out over 4.5 months, with completion in April 2006. Workshops involving the Government, ADB, and the consultants will be held in the PRC to review the consultants' reports.

IV. THE PRESIDENT'S DECISION

16. The President, acting under the authority delegated by the Board, has approved the provision of technical assistance not exceeding the equivalent of $800,000 on a grant basis to the Government of the People’s Republic of China for preparing the Western Roads Development Project, and hereby reports this action to the Board.

6 Appendix 1

DESIGN AND MONITORING FRAMEWORK

Design Summary Performance Data Sources/ Assumptions Targetsa Reporting and Risks Mechanisms Impact Assumptions An integrated road The gross domestic Provincial and county • Government and ADB transport system product and rural statistics office sign loan agreement. supporting income increase in sustainable economic the project areas. • Project design is growth in Gansu and implemented Sichuan provinces Poverty incidence in Provincial and county effectively as agreed project areas poverty reduction office upon during appraisal. declines. • Forecast economic A road transport Provincial growth rates are system integrating communications realistic and local road and departments and achievable. transport services will project completion be established. report

Outcome Assumptions Project design and Memorandum of Memorandum of • Government is willing feasibility study understanding signed understanding to address necessary improved to a level by Government and changes in priorities. suitable for ADB ADB during appraisal • Government obtains financing and agreed mission of July 2006 necessary sources of upon by Government funding. and ADB Outputs Assumption 1. Technical Inception report and ADB document • Effective stakeholder assessments interim report registration participation and completed submitted to ownership are Government and Government document developed. ADB by November registration 2005 and December Risks 2005, respectively • Availability and access to information and 2. Project design Summary EIA, TA workshops to report government personnel requirements poverty and social findings of the may be restricted. accomplished analysis, consultants at inception, • Access to geographical resettlement plan, interim, and draft final sites may be restricted. and results-based report stages monitoring system submitted to Government and ADB by January 2006

Appendix 1 7

Design Performance Data Assumptions Summary Targets/Indicators Sources/Reporting and Risks Mechanisms Draft final report and final report submitted to Government and ADB by January 2006 and March 2006, respectively Activities with Milestones Inputs 1.1 Analyze the transport demand in the region (by November 2005) • 17 person-months of 1.2 Assess the adequacy of road infrastructure (by November 2005) international and 32 1.3 Assess the adequacy of transport services (by November 2005) person-months of 1.4 Review the technical and financial aspects related to local road domestic consulting maintenance (by November 2005) services 1.5.Develop a result-based monitoring system, including performance • ADB: $800,000 indicators (by November 2005) • Government: $200,000 1.6 Recommend policy reform measures and institutional development needs (by November 2005) 1.7 Review the potential for private sector participation (by November 2005) 2.1 Carry out consultations with stakeholders, including government officials, project beneficiaries, and affected people, including women and the poor (December 2005) 2.2 Carry out social and poverty assessment (by December 2005) 2.3 Complete baseline survey (by December 2005) 2.4 Carry out financial and economic analyses (by January 2006) 2.5 Carry out institutional analysis (by January 2006) 2.6 Complete summary initial environmental examination and resettlement plan (by January 2006) 2.7 Finalize project design and monitoring framework (by March 2006) ADB = Asian Development Bank, EIA = environmental impact assessment, TA = technical assistance. a The indicators are not time bound and quantifiable at this stage, and will emerge as a result of the study.

8 Appendix 2

SOCIAL AND ENVIRONMENTAL ASSESSMENTS

A. Gansu

1. Initial Poverty and Social Assessment

a. Linkages to the Country Poverty Analysis

Is the sector identified as a national Yes Is the sector identified as a Yes priority in country poverty analysis? national priority in country poverty No partnership agreement? No

Contribution of the sector or subsector to reduce poverty in the People’s Republic of China (PRC):

The transport sector contributes to poverty reduction directly through improved access to markets, employment opportunities, and social services, and indirectly by stimulating economic development. The project area has lagged behind in economic development mainly because of poor environmental conditions, isolation, and lack of good transportation, which is currently limited to a class III or IV highway. The project will eventually link Wudu district and Wen county to Lanzhou, capital city of Gansu in the northwest; and to Chengdu, capital city of Sichuan and Chongqing municipality. The proposed expressway will reduce travel distance and time and cost for passenger trips and freight transport, thereby facilitating economic development, job creation, and improved access to social services. b. Poverty Analysis Targeting Classification: General intervention

What type of poverty analysis is needed?

The project will directly contribute to poverty reduction in the project area by generating construction employment opportunities in the short term and improving access to market for specialty cash crops, such as medicinal herbs and mushrooms. The project will substantially improve transport infrastructure that will facilitate economic development and thereby indirectly provide greater employment and income- generating opportunities for local people.

Further, the project will improve access to social services in the county centers and larger cities. The local people have poor transportation and very basic education and medical facilities. Poverty incidence in the project area is estimated to be 12% (320,700 people) based on the national poverty line of CNY668 income per capita and 37% (996,700 people) based on the provincial poverty line of CNY919 income per capita.

A detailed poverty analysis will be carried out to identify the causes of poverty in the project area and demonstrate how the project will help reduce poverty by incorporating specific measures in the project scope. The analysis will be based on the Handbook on Poverty and Social Analysis and Handbook for Integrating Poverty Impact Assessment in the Economic Analysis of Projects.

c. Participation Process

Is there a stakeholder analysis? Yes No Stakeholder analysis: Major stakeholders include Gansu Provincial Communications Department, local government, transport companies, local businesses, and local residents. Consultation began during the preparation of the preliminary feasibility study, which focused on the alternatives for the expressway alignment. Further consultation will be carried out for the environmental impact assessment (EIA), resettlement planning, and poverty and social analysis.

Is there a participation strategy? Yes No Local people will be consulted during the feasibility study, technical assistance (TA) implementation, and preliminary design to fix the expressway alignment, prepare village-level resettlement plans, formulate poverty enhancement measures including local roads and public transport service, and prepare for Appendix 2 9

construction employment opportunities. Project components will include local roads and public transport services. d. Gender Development

Strategy to maximize impacts on women: The TA will investigate opportunities to enhance the benefits to women through improved public transport service and local road improvements, which lead to better access to education, health care, and markets. Focus will be on remote villages, where females tend to drop out of school and have limited skills for outside work. The resettlement plan will also formulate special measures to improve the conditions for women.

Has an output been prepared? Yes No e. Social Safeguards and Other Social Risks

Item Significant/ Plan Not Significant/ Strategy to Address Issues Required None

Significant Full A resettlement plan will be prepared in accordance Resettlement with government regulations and the Asian Not Short Development Bank’s (ADB) Handbook on significant Involuntary Resettlement. None None

Significant Yes Affordability The project will reduce the cost of transportation Not No and goods purchased from outside. significant

None

Significant Yes Labor The project will contribute to creating employment Not opportunities during construction and will not have No significant any adverse impact on labor issues.

None There are no ethnic minority townships or villages Significant along the alignment, and only a few ethnic Yes Indigenous minorities (Hui and Tibetan) in the project Peoples Not beneficiary area. Minority populations are 54,180 No significant (2% of the total) in Longnan city, 14,000 (2.6% of the total) in Wudu district, and 3,500 (1.4% of the None total) in Wen county. Strategies will be identified to ensure that project benefits accrue to ethnic monorities. Other Risks and/or Significant Yes Vulnerabilities The risk of HIV/AIDS/STDs is considered low, but Not No will be assessed during the TA. significant

None

10 Appendix 2

2. Rapid Environmental Assessment

Screening Questions Yes No Remarks

1. Project Siting

Is the project area adjacent to or within any of the following environmentally sensitive areas? There are no reported cultural relics Cultural heritage site X along the proposed alignment. This will be confirmed during TA implementation. There are a few natural reserves in X the project area. None will be crossed Protected area by the alignment. To be confirmed during TA implementation. Several rivers will be crossed, but no Wetland X wetland areas will be affected.

Mangrove X

Estuarine X

Buffer zone of protected area X None reported. To be confirmed during TA. None reported. To be confirmed after Special area for protecting biodiversity X receiving the EIA report.

2. Potential Environmental Impacts

Will the project cause encroachment on historical/cultural areas? X None reported on the alignment. To be confirmed by specialists during TA. disfiguration of landscape by road X The alignment goes through mainly embankments, cuts, fills, and quarries? river valley in mountainous area; measures for landscape will be required at the design stage. encroachment on precious ecology (e.g., Routing indicates no encroachment sensitive or protected areas)? X on protected areas. However, there are some endangered wildlife in adjacent county (panda, golden monkey, bear); investigations will be required during the TA. alteration of surface water hydrology of There is risk since some sections go waterways crossed by roads, resulting in X along the Bailongjiang River, but increased sediment in streams affected by mitigation measures will be included increased soil erosion at construction site? in the environment management plan. deterioration of surface water quality due to silt Appropriate sanitation measures will runoff and sanitary wastes from workers camps X be required to prevent water pollution. and chemicals used in construction? Appendix 2 11

Screening Questions Yes No Remarks increased local air pollution due to rock There is potential for impact on local crushing, cutting and filling works, and X air quality from the project. Siting and chemicals from asphalt processing? operation of construction equipment will minimize any potential pollution. noise and vibration due to blasting and other X Noise and vibration from tunneling civil works? activities and blasting will impact some areas. Mitigating measures will be required to minimize impacts in some areas. other social concerns relating to There is the risk that increased dust inconveniences in living conditions in the X generation may impact some project areas that may trigger cases of upper residential areas. The EIA will assess respiratory problems and stress? these areas and develop remediation measures. hazardous driving conditions where Construction will impact access to construction interferes with preexisting roads? X some existing roads. Proper construction procedures will be required to minimize hazards. poor sanitation and solid waste disposal in X Appropriate sanitation and solid waste construction camps and work sites, and facilities will be provided. possible transmission of communicable Construction workers will be made diseases from workers to local populations? aware of public health risk.

creation of temporary breeding habitats for X Potential exists. Mitigating measures mosquito vectors of disease? will be identified during preparation of the EIA. dislocation and compulsory resettlement of A full resettlement plan will be people living in right-of-way? X prepared.

accident risks associated with increased Road safety program will be vehicular traffic, leading to accidental spills of X strengthened with the project, thereby toxic materials and loss of life? reducing accident risk. Emergency response measures will be implemented. increased noise and air pollution resulting from Emissions are expected to increase traffic volume? X slightly with increasing traffic.

increased risk of water pollution from oil, Road conditions will improve, thereby grease and fuel spills, and other materials from X reducing accident risk. vehicles using the road? HIV/AIDS = human immunodeficiency virus/acquired immunodeficiency syndrome, STD = sexually transmitted disease. 12 Appendix 2

B. Sichuan

1. Initial Poverty and Social Assessment

a. Linkages to the Country Poverty Analysis

Is the sector identified as a national Yes Is the sector identified as a Yes priority in country poverty analysis? national priority in country poverty No partnership agreement? No

Contribution of the sector or subsector to reduce poverty in the People’s Republic of China (PRC): The transport sector contributes to poverty reduction directly through improved access to markets, employment opportunities, and social services, and indirectly by stimulating economic development. Despite good natural resources, the project area has lagged behind in economic development mainly because of lack of good transportation, which is currently limited to a class II or III highway. The project will link the existing Chongqing to Dazhou expressway to Shaanxi Province. The proposed expressway will reduce travel time and cost for passenger trips and freight transport, thereby facilitating economic development, job creation, and improved access to social services. b. Poverty Analysis Targeting Classification: General invervention

What type of poverty analysis is needed? The project will directly contribute to poverty reduction in the project area by generating construction employment opportunities in the short term and improving access to market for cash crops. The project will substantially improve transport infrastructure that will facilitate development of energy resources and thereby indirectly provide more employment and income-generating opportunities for local people.

Further, the project will improve access to social services in the county centers and larger cities. The local people have inconvenient transportation and very basic education and medical facilities. Poverty incidence in the project area is estimated to be 6% (130,000 people) based on the national poverty line of CNY668 income per capita, and 10% (217,000) based on the provincial poverty line of CNY1,000 income per capita.

c. Participation Process

Is there a stakeholder analysis? Yes No Stakeholder analysis: Major stakeholders include Sichuan Provincial Communications Department, project company, local government, transport companies, local businesses, and local residents. Consultation began during the preparation of the feasibility study. Further consultation will be carried out for the environmental impact assessment, resettlement planning, and poverty and social analysis.

Is there a participation strategy? Yes No Local people will be consulted during preliminary design to fix the expressway alignment, prepare village- level resettlement plans, formulate poverty enhancement measures, and prepare for construction employment opportunities. Project components will include local roads and possibly public transport services. Appendix 2 13

d. Gender Development

Strategy to maximize impacts on women: The technical assistance (TA) will investigate opportunities to enhance the benefits to women through improved public transport service and local road improvements, which lead to better access to education, health care and markets. Focus will be on remote villages, where females tend to drop out of school and have limited skills for outside work. The resettlement plan will also formulate special measures to improve the conditions for women.

Has an output been prepared? Yes No This will be prepared during the TA e. Social Safeguards and Other Social Risks

Item Significant/ Plan Not Significant/ Strategy to Address Issues Required None

Significant Full A resettlement plan will be prepared in accordance Resettlement with government regulations and the Asian Not Short Development Bank’s Handbook on Involuntary significant Resettlement. None None

Significant Yes Affordability The project will reduce the cost of transportation Not No and goods purchased from outside. significant

None

Significant Yes Labor The project will contribute to creating employment Not opportunities during construction and will not have No significant any adverse impact on labor issues.

None

Significant Yes Indigenous There are no ethnic minority townships or villages or Peoples Not significant concentrations of ethnic minorities in the No significant project area.

None

Significant Yes Other Risks The risk of HIV/AIDS/STDs is considered low, but and/or Not No will be assessed during the TA. Vulnerabilities significant

None 14 Appendix 2

2. Rapid Environmental Assessment

Screening questions Yes No Remarks

1. Project Siting

Is the project area adjacent to or within any of the following environmentally sensitive areas? There are no reported cultural relics Cultural heritage site X along the proposed alignment. This will be confirmed during TA implementation. There are no protected areas along Protected area X the alignment. This will be confirmed during TA. Several rivers will be crossed, but no Wetland X wetland areas will be affected.

Mangrove X

Estuarine X

Buffer zone of protected area X None reported. This will be Special area for protecting biodiversity X confirmed during the TA.

2. Potential Environmental Impacts

Will the project cause… encroachment on historical/cultural areas? X None on the alignment.

disfiguration of landscape by road X Much of the expressway passes embankments, cuts, fills, and quarries? through mountainous terrain. There will be significant cut and fill during construction. encroachment on precious ecology (e.g. Initial routing indicates no sensitive or protected areas)? X encroachment on protected areas. This will be confirmed during the TA. alteration of surface water hydrology of There is a risk, but mitigation waterways crossed by roads, resulting in X measures will be included in the increased sediment in streams affected by environment management plan. increased soil erosion at construction site?

deterioration of surface water quality due to silt Appropriate sanitation measures will runoff and sanitary wastes from worker-based X be required to prevent water camps and chemicals used in construction? pollution.

Appendix 2 15

Screening questions Yes No Remarks increased local air pollution due to rock There is a potential impact on local crushing, cutting and filling works, and X air quality from the project. Siting chemicals from asphalt processing? and operation of construction equipment will minimize any potential pollution. noise and vibration due to blasting and other X Noise and vibration from tunneling civil works? activities and blasting will impoact some areas. Mitigating measures will be required to minimize impacts in some areas.

other social concerns relating to inconveniences There is a potential that increased in living conditions in the project areas that may X dust generation may impact some trigger cases of upper respiratory problems and residential areas. The environmental stress? impact on the area will be assessed and remediation measures developed. hazardous driving conditions where construction Construction will impact access to interferes with pre-existing roads? X some existing roads. Proper construction procedures will be required to minimize hazards. poor sanitation and solid waste disposal in X Appropriate sanitation and solid construction camps and work sites, and possible waste facilities will be provided. transmission of communicable diseases from Construction workers will be made workers to local populations? aware of public health risks.

creation of temporary breeding habitats for X Potential exists. Mitigation measures mosquito vectors of disease? will be identified during preparation of the environmental impact assessment. dislocation and compulsory resettlement of A full resettlement plan will be people living in right-of-way? X prepared.

accident risks associated with increased Road safety program will be vehicular traffic, leading to accidental spills of X strengthened with the project, toxic materials and loss of life? thereby reducing accident risk. Emergency response measures will need to be implemented. increased noise and air pollution resulting from Emissions are expected to increase traffic volume? X slightly with increasing traffic.

increased risk of water pollution from oil, grease Road conditions will improve, and fuel spills, and other materials from vehicles X thereby reducing accident risk. using the road?

HIV/AIDS = human immunodeficiency virus, STD = sexually transmitted disease, TA = technical assistance.

16 Appendix 3

COST ESTIMATES AND FINANCING PLAN ($)

Foreign Local Total Item Exchange Currency Cost

A. Asian Development Bank (ADB) Financinga 1. Consultants a. Remuneration and Per Diem i. International Consultant 362,000 0 362,000 ii. Domestic Consultant 0 208,000 208,000 b. International and Local Travel 50,000 6,000 56,000 c. Reports and Communications 1,000 20,000 21,000 2. Office Equipmentb 30,000 0 30,000 3. Surveys, Miscellaneous Administration and Support Costs 0 50,000 50,000 4. Government Representatives for Contract Negotiationsc 6,000 0 6,000 5. Contingency 41,000 26,000 67,000 Subtotal (A) 490,000 310,000 800,000

B. Government Financing 1. Office Accommodation and 0 100,000 100,000 Support Services 2. Remunerations and Per Diem 0 80,000 80,000 of Counterpart Staff 3. Others 0 20,000 20,000 Subtotal (B) 0 200,000 200,000 Total 490,000 510,000 1,000,000 a Financed by ADB's technical assistance (TA) funding program. b Including computer hardware and software, photocopier, fax machine, and other office equipment to be procured under the consultant's contract. Ownership will be transferred to the Government at TA completion. c Includes the cost of Government observers to attend contract negotiations at ADB headquarters. Source: ADB estimates.

Appendix 4 17

OUTLINE TERMS OF REFERENCE FOR CONSULTANTS

1. Consulting services will fall into seven major categories. The consultants’ specific tasks under each category are described in the following paragraphs.

A. Highway Engineering

2. Review all technical aspects in the feasibility studies and available engineering designs. In view of the difficult topography in the project area, undertake a thorough technical review including (i) horizontal and vertical alignment; (ii) subsurface investigation, particularly where tunnels are proposed; (iii) availability and quality of local construction materials; (iv) pavement, bridge, and tunnel design options; (v) drainage facilities; (vi) siting and configuration of interchanges, toll stations, and service areas; (vii) provision for cross-expressway access; and (viii) road safety features. Assess the need for reviewing the prefinal design documents for major structures, depending on their complexity; and if found necessary, carry out the review before finalizing the documents.

3. On the basis of traffic volumes, forecast traffic, traffic mix, and axle loads, 1 review the adequacy of the proposed road capacity and pavement design, and recommend measures to prevent overloading on the project expressway, e.g., installing vehicle weighing stations at selected entry points, and other measures.

4. Prepare an inventory of the local roads for each county of the project area. Identify an improvement program for secondary and tertiary road networks, including provincial, county, township, and village roads. Incorporate the local roads development program into the project and design it to enhance the distribution of the anticipated project benefits to the hinterland and the rural population in the project area. Give particular attention to including roads in poverty and minority counties and townships as appropriate. Review the local government’s road asset management systems at provincial, county, township, and village levels, and recommend measures for improvement.

5. Review bills of quantities, unit prices, and costs of (i) civil works for expressway construction and road improvement, and (ii) equipment and other facilities to be procured under the project. Review the current road maintenance, operation, and management systems. Estimate the costs of routine and periodic maintenance for the expressway and local road development components. Recommend suitable road maintenance operation and management systems and necessary equipment. Review and update the project cost estimates and indicate the foreign exchange (direct and indirect) and local currency costs, giving due consideration to the actual costs of recently awarded contracts of a similar nature in Gansu and Sichuan.

6. Review (i) current design methodology in relation to road safety; (ii) road safety monitoring system and latest accident statistics in Gansu, Sichuan, and the project area; and (iii) road safety data and management systems in Gansu and Sichuan. Design a suitable road safety component for inclusion in the project in discussion with the Executing Agency and the Provincial Public Security Bureau.

7. In cooperation with the social and poverty specialist and transport economist, explore the possibility of introducing the roadside station concept2 in the service areas or other suitable areas along the expressways or other major roads as part of the project.

1 If information about axle loads is not available, the consultants will undertake an axle loads survey along the project roads. 2 The concept was developed in Japan as part of road infrastructure to contribute to local community development, and it has been adopted in Thailand with assistance from the Japan Bank for International Cooperation. See World Bank. 2004. Guidelines for Roadside Stations. Washington, DC. 18 Appendix 4

B. Transport Economics

8. Review the current status and future plans (Tenth Five-Year Plan [10FYP] and Eleventh Five- Year Plan [11FYP] of road development in the People’s Republic of China (PRC), Gansu Province, and Sichuan Province, including the project area (maps will be prepared for this purpose). Identify the role of the project in the framework of the Western Development Strategy in supporting pro-poor growth and poverty reduction in the western part of the PRC in general and Gansu Province and Sichuan Province in particular.

9. Review the revenue and expenditures in the Gansu and Sichuan road sector in the past decade and make projections for the 10FYP and 11 FYP (2001–2010). Analyze the level of expenditures for maintenance of local roads (as against expressways and national highways) in the past decade and financing plans for future maintenance. Examine the role of the road sector in the fiscal position of the province and analyze how the sector contributes to poverty reduction.

10. Review existing traffic counts and origin-destination surveys, and obtain any additional necessary information on the present pattern of traffic by vehicle type and mode in the zone of influence of the project. Assess capacity of the existing road networks and the effects of the capacity constraints on vehicle operating costs (VOCs), travel time, and patterns of transport movement.

11. Using the most recent data for each vehicle type, prepare traffic forecasts at a range of toll rates for the project for normal, generated, and diverted traffic. Traffic diversion from the railways and waterways should also be assessed, as appropriate. Based on the effect of the toll rates on traffic diversion, prepare traffic forecasts for the project at various toll rates. In developing the traffic forecasts, take into account the long-term gross domestic product and other forecasts for the PRC prepared by the Asian Development Bank (ADB).

12. Undertake economic evaluation in accordance with ADB's Guidelines for Economic Analysis of Projects3 for the expressway and the local road components and for the project as a whole over the construction and operation period by calculating the economic internal rate of return (EIRR). Take into account construction, operation and maintenance (O&M) costs, VOCs, passenger and freight time savings, producer surplus, accident savings, and any other quantifiable benefits attributable to the project. Undertake sensitivity analysis by appropriately varying benefits, costs, implementation period, traffic diversion, generated traffic, shadow price factor, and a combination of these factors. Calculate switching values and compare with evidence for existing expressway projects. The sensitivity analysis of the EIRR and the financial internal rate of return (FIRR) to changes in the toll rates should cover a sufficiently wide range to indicate the toll level at which (i) the EIRR falls to the cutoff rate of 12% and (ii) the FIRR reaches the maximum value. Present the result of the sensitivity analysis graphically. Carry out risk analysis4 using the monte carlo method by considering the possible values for key variables based on past PRC experience, and the probability with which they may occur. Recommend ways in which project risks can be reduced. With the assistance of the social and poverty specialist, carry out distribution analysis of project benefits, calculate the poverty impact ratio, and undertake a cause-and-effect analysis, following the methodology set forth in ADB's Guidelines for the Economic Analysis of Projects.

13. To ensure that the project achieves its envisaged objectives, develop a results-based monitoring system, using the design and monitoring framework in an ADB format, including monitoring indicators that will be used to assess project performance, and baseline and target values for the selected indicators, covering economic, transport, socioeconomic, poverty impact,

3 ADB. 2001. Handbook for Integrating Poverty Impact in Economic Analysis of Projects. Manila. 4 ADB. 2002. Handbook for Integrating Risk Analysis in the Economic Analysis of Projects. Manila. Appendix 4 19 environmental, and resettlement aspects. Develop a detailed monitoring framework for selected townships in the project area and a control area, and collect baseline data and target values for key indicators. Prepare implementation arrangements, including data sources and reporting mechanism.

C. Financial Analysis and Expressway Operations

14. Review and update the proposed financing plan of the project including the share of ADB, Ministry of Communications, Gansu Province, Sichuan Province, domestic banks, and other sources, as appropriate. Calculate a discounted return to equity over the project life, and assess its attractiveness to private investment. Review project cost estimates and proposed drawdown schedules as provided by the engineers. Compute price contingencies and interest and other financing charges during construction in accordance with Guidelines for the Financial Governance and Management of Investment Projects Financed by the Asian Development Bank. Assess and prepare financial projections for the proposed operating entity over 10 years of expressway operation, including balance sheets, income statements, and cash flow statements in nominal terms.

15. Carry out financial evaluation for the project over the construction and operation period by calculating the FIRR, using proposed toll rates, and compare it with the weighted average cost of capital (WACC). The FIRR and WACC should be computed on an after-tax basis in real terms using constant 2005 prices. In collaboration with the transport economist, determine and justify appropriate toll rates by vehicle type, taking into account the relationship between the toll rates and cost of providing the road services; and ensure consistency of approach and assumptions between financial and economic analyses activities.

16. Assess the financial management of the operating entities, including (i) corporate planning and budgetary control, (ii) financial and management accounting, (iii) cost accounting, and (iv) internal control and audit system. Suggest appropriate financial covenants to monitor financial conditionalities of the project. In light of ADB’s Policy on Governance—Sound Development Management (1995), recommend ways to improve corporate governance of the expressway operating entity, e.g., by entering into a concession agreement with the provincial communications department.

17. Review the current status of private sector participation in expressway development and operations in Gansu Province and Sichuan Province and assess the potential for operating the project expressway as a corporation or as a concession by the private sector. Identify appropriate arrangements to implement such a strategy, considering options such as leasing, securitization, joint venture, build-operate-transfer, and other arrangements for O&M.

D. Road Transport Service

18. Assess the provision of trucking and public transport services in the project area considering pricing, quality, and frequency of service. Assess the degree of competition and the proportion of the reduced transport costs that are likely to be passed on to end users. Review the current conditions of road transport services, including passengers and freight in Gansu in general and Longnan City in particular, and examine how such services could be improved to provide efficient services in poor remote areas. Recommend suitable components, e.g., public transport center, freight distribution center, improvement of bus services, and any others, for inclusion in the project. For Sichuan Province, review the current conditions of public transport in the project area and determine the need to incorporate the public transport component into the project so as to improve services to poor remote areas.

20 Appendix 4

E. Social and Poverty Analysis

19. Prepare socioeconomic and poverty profiles for the project area. Collect data through statistical records, field surveys, key informant interviews, and participatory community appraisal techniques. Include data on population, income levels, occupations, unemployment, education, health conditions, and other relevant socioeconomic data. Separate data by gender. The data and profiles should be sufficiently comprehensive to serve as the baseline for socioeconomic performance indicators. Assess poverty incidence using the government poverty lines and $1 a day (equivalent to CNY900 per year).

20. Based on the initial poverty and social analysis, conduct a full poverty and social analysis in accordance with ADB’s Handbook on Poverty and Social Analysis. Assess how the proposed project may help improve people’s livelihood systems. Assess gender issues, identify ethnic minorities and other vulnerable groups, and recommend appropriate measures to address impacts and promote development opportunities during construction and operations of the project. Estimate (i) the number of project beneficiaries by area, occupation, and income level (poor, low, medium, and high); and (ii) the number of adversely affected people, by type of impact. If any ethnic minorities are affected, formulate special measures to safeguard their livelihood and customs. In particular, develop strategies to ensure project benefits accrue to ethnic minorities in the Gansu project area. Specify how the project will improve benefits (market access, employment opportunities, lower transport costs, reduced travel time, etc.) for local people, by income group. Recommend measures to enhance benefits and minimize adverse impacts, particularly for the poor. The cost of such measures and the means for implementation will be clearly proposed for possible incorporation into a social development action plan implemented as part of the Project.

21. Assist in establishing consultation and participatory processes during project preparation that will continue throughout project design, construction and operation. Identify stakeholders and consult representatives so that their needs and demands can be considered for incorporation into the project or as parallel initiatives.

F. Environmental Impact Assessment

22. Review the project environmental impact assessments (EIAs), as prepared by the executing agencies (EAs), to ensure they conform to ADB’s Environment Policy (2002) and Environmental Assessment Guidelines (2003). Assist the EAs to carry out further investigations and analysis, as required, to ensure that the EIAs conform to the above ADB policies and guidelines. Finalize the EIAs by incorporating comments from ADB. Also prepare summary EIAs (SEIAs) in accordance with ADB’s Environmental Assessment Guidelines (2003).

23. Ensure that each EIA includes (i) description of the project; (ii) description of the environment, including physical resources, ecological resources, economic development, and social and cultural resources; (iii) assessment of project alternatives; (iv) anticipated environmental impacts (direct, indirect, induced, and cumulative) and mitigating measures; (v) economic assessment; (vi) environmental management plan, including institutional management and mitigating measures for identified environmental impacts; (vii) environmental monitoring plan; and (viii) public consultation and information disclosure.

24. Based on a preliminary environment scoping, assess the major specific environmental concerns, including (i) impacts on surface water, (ii) impacts on groundwater, (iii) impacts on air quality, (iv) soil erosion, and (v) impacts of construction activities on the community. Estimate the costs of implementing the proposed environmental mitigating measures and the environmental monitoring plan. Assess the level of costs against expected environmental benefits, where possible, in a quantifiable manner. Assist the highway engineers in incorporating appropriate Appendix 4 21 environmental mitigating measures into the project design; make recommendations on the environmental training requirements. Prepare contractor specifications for environmental management and monitoring. Prepare the terms of reference and budget for independent environment monitoring and evaluation.

25. Assist the EAs in conducting appropriate public consultation, as required, in accordance with ADB’s requirements. Public consultation and disclosure for this project (category A) requires (i) public consultation on environmental issues during the early stages of EIA fieldwork, and (ii) public consultation on environmental issues when the draft EIA report is available, and prior to loan appraisal by ADB. Ensure that the EIA includes proposed measures for public consultation during project construction and operation.

G. Resettlement Planning

26. Review the draft resettlement plan (RPs) and prepare modifications, as required, to comply with ADB’s Involuntary Resettlement Policy (1995), Handbook on Resettlement (1998), and other relevant requirements. The RPs should address all project components including the expressway, local roads, access roads, and construction areas. Review the results of the socioeconomic profiles, village surveys and household surveys conducted by the EA (data should be disaggregated by gender). Quantify the types and degree of impacts on the affected people, including income levels and sources, housing conditions, occupations, expenditure patterns, landholdings, skills base, and assets (production and living). Assess the socioeconomic condition, needs, and priorities of women affected by land acquisition and resettlement; and identify specific measures to assist them and ensure that land acquisition and resettlement do not disadvantage women.

27. Document in each RP the extent to which the project design and alignment have avoided or minimized land acquisition and displacement of people and businesses. Include in the RPs village- level impact assessment of project-affected people, land, assets, and occupations. Identify potential impoverishment risks and vulnerable groups, including those severely affected through loss of land, those with low income, and others (e.g., the disabled, the elderly, ethnic minorities, unemployed, illiterate, women, children) and develop special mitigating measures, as required.

28. Assess the policy and legal framework for resettlement, identify any gaps between ADB and PRC policies and propose measures to bridge the gap. In collaboration with the EA and local government officials, define impact categories and compensation eligibility of affected people, and prepare an entitlements matrix covering compensation and other assistance for all types of impacts to achieve full replacement for lost assets, income, and livelihood systems.

29. Assist the EAs and expressway companies to prepare a public consultation and disclosure plan, develop a format for documenting consultation with affected people, and initiate a participatory process for RP preparation and implementation among affected communities, local leaders, proponents, and other stakeholders. Assist the EAs to prepare a resettlement information booklet for distribution to all affected villages and households.